Since its a Holding company, does this valuation factor in holding company discount? if that discount is applied current market cap suggests its fully valued at this price?
Hi Vivek,
I think holding company discount is applicable when holdee companies are also listed e.g. Alembic will have holding company discount because Alembic Pharma is listed or Biocon/Syngene pair.
In this case, one can buy MHC or Max Bupa only through Max India and I feel holding company discount is not applicable.
Regards,
Rupesh
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Stumbled across these articles on senior living-
While 6 times by 2030 could be “pie in the sky”, I still think this is a niche space and will evolve with time. Requirement for quality affordable senior living spaces would increase in India with time. I am not sure what makes you believe this space would not present a good business opportunity. Please share your thoughts.
Regarding Bupa and healthcare, i agree with your valuation model. This should be a 12k-15k cr mkt cap company in 5-7 years if things go as planned.
Disclaimer: Invested in Max India. No transaction in last 3 months.
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Hi Mridul,
Real Estate projects inherently have bad capital structure where a lot of capital is required upfront and rewards start coming in slowly over the period of years leading to large working capital cycle. This itself makes it impossible to have high return on capital.
Added to that are other things like - very low entry barrier as anyone with capital in India is a builder, regulatory issues, land acquisition issues, constant need for large marketing, reputational risks for failure etc.
On the top of that, Antara is promising world class services and plans to use the model of operational leases. As of now, only income is interest and other income. I am not sure numbers would look good once operational leases start flowing in P&L numbers.
For the project of 200 apartments, there are 140 people hired by management. How does one achieve any operational efficiency with so much manpower? Also they are promising world class services, so the machine has to keep on running over the years.
With all this, I don’t have confidence that costs can be kept down. With no asset creation for large cost of operational leases, I am not sure one would be willing to pay such money. I think I would hold tight to my assets as I start getting older.
For a non-senior living project by Max consisting of 30 apartments, one of my colleague from Delhi found an ad on Indigo jet. I have mixed view on whether such advertising expense is justified.
I think senior living as a concept will continue to grow. But I think it makes sense for standalone real estate player (like Ashiana or Athashree) to get into senior living but when you have so many capital allocation options as Max does - it does not look like the thing worth doing. By all means, go & buy a hospital in Mumbai or Pune. As of now, it looks to me that Tara Singh Vacchaani (Daughter of Analjit Singh) had a bright idea of senior living in 2010 and minority shareholders have to take part in her adventures.
The good thing is management seems to be in experimental mode in Antara and going very slowly. Let’s see what conclusions do they draw from these experiments.
These are my views until facts change. Hope this clarifies.
Best Regards,
Rupesh
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This forbes article profiles the next gen grooming plan from the promoter family who owns 46% of Max - Always good to have promoter driving things and hope these are well thought of ventures - based on the data we have, Antara is not setting the right example.
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I think the concept has potential but to play the game , business model will need lot of tweaking. Hunting developed market or markets with high proportion of old age population will show some companies have made money but not playing plain vanilla model. In my opinion this will take 10-15 year s to generate volume opportunity considering age band distribution of India which may give good times to try various business models . The key to success I see is:
- Financial Engineering from company perspective
- Supportive REIT frameworks from govt
- Service mindset. I do not think by any means a real estate mindset , skill n culture will lead to success. This needs huge service culture within organization
- Ability to bring multiple stake holders to ensure a investor profitable model and manage customer needs
These are still very early days.Things will evolve. I agree with you that this is not the way to go and might become sunk cost or may be management learns from mistakes , tweak business model and get first mover advantage . Start is not smart for sure. Disc : Hold a tracking position only due to interest in health and insurance business . May accumulate if valuations become more attractive
This is the main reason why all max group companies were going down in last few weeks.
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Can this have any impact on Max’s brand?
@rupeshtatiya @hitesh2710 @desaidhwanil
What do you perceive of this licence cancellation by the the Delhi govt? Does it happen that the license is reinstated?
What would be your next course of action? Thanks.
First of all, the incident that led to the cancellation of hospital license is unfortunate. We must acknowledge that. However, I do not think we have enough credible information to understand the reasonableness of the cancellation imposed and the clarity around the medical negligence as claimed by the media reports and government. Hence, there is no point attempting to dissect it and to opine on that.
Also,I do not have much idea about the legal recourse available with Max with respect to decision so difficult to comment whether the license can be reinstated or not and if so in what time frame.
What we know is that the license cancelled is for Shalimar Bagh hospital, which is 250 bed hospital. Hence, on base of 2400 beds, the impact is likely to be 10% of MHC’s revenue for some time. Even though it is large from near term perspective, looking at their growth plans and bed additions over next 3-5 years, I think it can be covered up. So, just from numbers perspective, I do not see sizeable impact from medium to longer term perspective.
Having said that, more important takeaway from this incident for me is the risk of running the private hospital business and the impact of slipping up on performance. Like all profession, medical profession is too not infallible. People do make mistakes and/or end up in error of judgement. In spite of best quality controls and defined procedures, there may be incidents like this in future for Max as well as for all other hospitals. If the government and society is expecting zero error environment from private hospitals (while no such expectation from public hospitals which go unpunished inspite of much larger and recurring mistakes), it may be asking for too much. Moreover,IF the industry is saddled with disproportionate cost of committing a mistake (while other industries get away with much smaller penalties), while the regulations around cost/benefit are saddled against you(such a price control in procedure etc), it becomes an economically unattractive proposition for investor/capital allocators.
On the next course of action, I will wait and watch how it pans out and what management has to say about it. However the “disproportionate cost” risk for the entire industry becomes a key ponderable.
Discl: My views may be biased as I have holding in Max India. I may sell/buy more without disclosing in this forum as the situation evolves or my view crystallizes. I am not an SEBI registered investment adviser hence please do your own due diligence before making an investment decision.
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Thanks Dhwanil for the response. I am also of the belief that 250 out 2400 operational beds might only have a short term impact on the Company. Only thing we need to see is around price regulation from the government going forward.
And again, this might be a lesson for the management of the Company to have stricter internal controls and compliances going forward which should do good only.
The surprising part is negligence in case of a single child has resulted in license cancellation where as no action is taken for multiple deaths in a single hospital. See the link below for example.
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I think there will also be Impact on revenues because of loss of reputation…
UPDATE :
Max Healthcare Institute has got a stay on cancellation of its license of Max Hospital, Shalimar Bagh.
http://www.bseindia.com/xml-data/corpfiling/AttachLive/7d48affe-65ca-4055-8054-d2cbd15be947.pdf
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Devi shetty Interview on Healthcare Industry in India and it’s challenges
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Very interesting article on how big hospital chains (max and Fortis) are gobbling up charitable hospitals. Some excerpts -
Mega healthcare chains like Max and Fortis have evolved a lateral way to mine for gold—taking over smaller hospitals run by charitable trusts. Nearly one-third of hospitals run and managed by Max and Fortis have been taken over from what were earlier charitable trusts. Taking over an established, running hospital—whether by a trust or a private entity—makes a lot of business sense for them. They get the existing infrastructure and a customer base. Starting from scratch is not an easy task especially as cost of setting up greenfield hospitals is very very high.
Hospitals run by trusts, he says, generally have prime land allotted long ago. When a big chain like Max or Fortis takes over, the existing trustees resign to give way to the new ones. The trust remains as it is, with a new management in place. It is as per the law and above board. The only thing is that the new management must continue with the trust’s “charitable activities, fulfilling the aims for which it was set up. Such hospitals also get tax breaks.
In 2016, the Delhi government asked five hospitals to deposit “unwarranted profits” amounting to Rs 600 crore for refusing free treatment to the poor. Max in Saket was one of the 5.
A 2017 CAG report observes that so-called charitable hospitals have netted I-T exemptions worth hundreds of crores of rupees but do little or no charity. In Delhi, the director of I-T (Exemptions) had cancelled the registration granted to Devki Devi Foundation under Section 12A of the I-T Act in 2011. Devki Devi was no longer functioning as a charitable institute ever since it entered into an agreement with Max in 2001, the director stated, and Max was running the hospital with a profit motive—the foundation being reduced to a “special purpose vehicle” to take advantage of concessional land and to pass off profits to Max group companies.
https://www.outlookindia.com/magazine/story/charity-remains-the-facade/299678
Despite all this illegal means, tertiary healthcare provision is capital-intensive in a talent-starved market and Indian healthcare costs are perhaps the lowest in the world. Most private healthcare providers in India are operating with single-digit ROCE, which is even less than the cost of capital.
I think we are going to see more stringent regulation hitting the hospital chains. We all know there are things that must be corrected. This in long run will be good for all stakeholders.
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South African partner moves to exit max healthcare
I have penned down my understanding of Indian Healthcare Services Industry and it’s Business Economics as first post on my new blog Rational Side of Pendulum. I wanted to share so that anyone interested in Healthcare Delivery business can benefit from it. Please click here. I am looking forward to any questions/comments.
Disc: small tracking position in NH.
Life Healthcare said to weigh sale of Max Healthcare stake http://www.livemint.com/Companies/SLKgWWpntx6OyulVSfuUFN/Life-Healthcare-said-to-weigh-sale-of-Max-Healthcare-stake.html
As per article , hospital business valued at more than 4500 which means more than 2200 CR for max India (edited) cr. Disc : entered last week and looking to accumulate more
Saurabh, Max has just 50% stake in Healthcare business (so as per the reports, Max stake is close to 2200-2500 cr). So if you have based your premise on undervaluation, it isn’t 
Though i am very sure about its long term prospects.
Disclaimer: Invested. Added more in last 90 days.
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Not undervaluation but reasonable valuation in Bull markets 
. Aware of the 49% thing.